Woodside Petroleum: Good Q4, waiting on Browse

About the author:

Adrian Prendergast
Author name:
By Adrian Prendergast
Job title:
Senior Analyst
Date posted:
20 January 2020, 1:45 PM
Sectors Covered:
Mining, Energy

  • A solid Q4 operational performance from Woodside, with output offsetting high temperatures during the quarter that impacted LNG production.
  • NWS and realised prices were ahead of our estimates, while Pluto and Wheatstone trailed in Q4.
  • Woodside achieved its 2019 production guidance of 89-91mmboe, with volumes of 89.6mmboe.
  • Finalising Browse’s gas processing agreement negotiations remains a major short term catalyst.
  • We maintain our Add rating on Woodside (Morgans clients can login to view detailed reports and price targets).

Q4 recap 

A good fourth quarter result from Woodside, with solid output from North West Shelf (NWS) and realised prices offsetting impacted LNG volumes from ambient heat during the quarter.

Total production was up 3% on the previous quarter, at 25.7mmboe.This saw total 2019 production of 89.6mmboe (vs Morgans 89.5mmboe), with Woodside achieving full year production guidance of 89-91mmboe, while Q4 sales volumes trailed at 88.9mmboe (vs Morgans 89.5mmboe).

Group sales revenue for the year was ahead of our estimate at US$1,446m (vs Morgans US$1,311m).  

Output offsets Q4 heat 

NWS posted a strong underlying performance, with operating rates following the major Q3 turnaround.

Higher Q4 realised prices further contributed to the result.

Meanwhile LNG volumes from both Pluto and Wheatstones were also impacted by the ambient temperatures in WA during the quarter.

With the first half also dragged on by an extended outage at Pluto post its Q2 turnaround. Woodside has set 2020 production at 97103mmboe.

After adjusting our model for the Q4 result, our 2020 forecast has decreased to 99.3mmboe (was 103mmboe) after marginally trimming our Pluto forecast.

Growth projects being worked on

There were no major updates on the progress of Woodside’s growth projects in the Q4 result.

Woodside commented that it is ready for Browse to enter FEED (front end engineering and design) once the gas processing agreement has been finalised.

In the meantime the JVs achieved FID (final investment decision) on the Pluto-NWS interconnector and Julimar-Brunello Phase 2 development, and approval to proceed with Phase 1 development of Sangomar (Senegal).

Remains our top large-cap energy pick

Along with its large-cap oil & gas peers, Woodside’s share price has gained support in recent months on an oil price recovery and progress on the company’s growth projects.

Despite the higher price we continue to see attractive value on offer.

After updating our model for the fourth quarter result our valuation has reduce.

Accounting for Woodside’s healthy yield focus, we estimate a total shareholder return (TSR) of 10%.

Woodside boasts the best margin (>75% EBITDA margin), balance sheet (gearing ~13%) and elevated dividend yield (80% payout ratio) of its large-cap peers.

We maintain our Add rating. The key risk to our call remains oil price risk and execution.

More information

Morgans clients can login to view our detailed report for Woodside Petroleum. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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